Ashish Gupta

Twitter - @ashishgupta325
 Before I start..

(2) Why incompetent people think they're amazing - David Dunning - YouTube
 Trading Style
● Mostly delta neutral positional trading in stock options (SSOs)
● Put a large number of high POP trades. Trade Small Trade Often
-TastyTrade
● High IV/IVP - Usually IVP > 70 serves as a good filter for vol short trades
● Strangles - Starting 30-35 DTE with 16-20 delta options in high IV stocks
● Short Straddles/Flies - 12-20 DTE. Long straddle ahead of earnings 5-13
DTE
● Ratio/Calendar spreads - Trading vol skew or IV differential in two
contracts
● Vertical Spreads - Use mostly for hedging with long option at ATM
● Earning Trades - Flies or strangles with 12-18 delta options
● Short Naked Put - At portfolio level where I am short naked puts with
exposure of 10-15% of the account size
 Trade Adjustments

● Adjustment is NOT a holy grail

● Adjust only if the underlying idea behind putting on a trade is still
valid
● Simple thumb rule is to keep delta in check
● Rolling the untested side up/down
● Deploying position in multiple chunks
● Roll the entire position to next expiry
● Hard stop at a fixed % of capital beyond which no adjustment
● Managing winners - managing early works better!
How to Adjust a Short Strangle Position | by Ashish gupta | Medium
 Position Sizing
● Notional Value = Price of the underlying times the contract size
● Ex - Nifty CMP 15000 and lot size is 75 so notional value of 1 lot of Nifty is
15100*75 or 11.25 lacs
● Reliance CMP 2000 lot size is 250 so notional value is 2000*25 or 5lacs
● Position sizing for options selling based on notional exposure and not
margin blocked
● For naked options selling, I carry about 2-3X exposure
● Aspiring and new traders should stick to 2X exposure
● Myth that undefined risk strategies have unlimited risk and higher chance
of risk of ruin?

A bit on position sizing for options selling | by Ashish gupta | Medium

Undefined-Risk vs Defined-Risk - From Theory To Practice | tastytrade

 Position Sizing - Small Accounts (15L)

● Let’s see how it works for an account size of 15L with option selling in Nifty
Nifty CMP ~15000 with notional value as 11.25lacs
● Say you sell a ~16 delta strangle (14600/15450) for a credit of 55-60 bucks
● Margin required - 1.5 Lacs, Account Size 15 Lacs
● Account 1 - Exposure based option selling, with ~2X exposure, you would sell
only 3 lots
● Account 2 - Based on margin, you can deploy even 10 lots. Let’s say you
deploy 8 lots and keep the rest 3l for adjustments - 8 lots is 6X exposure
● What happens if there is a big gap on either side - 5%? Per lot loss ~300
points. Account 1 loss ~67.5k or 4.5% and account 2 loss ~1.8L or 12%
● What if there is a black swan and market opens 10%? Per lot loss ~1200 points.
Account 1 loss 2.7lacs or 18% and account 2 loss ~7.2l or ~50% capital loss
 Position Sizing - Larger Accounts (1 Cr+)
● For a 1 Cr account, risk can be diversified by trading in a large number of underlyings.
● Overall exposure of 2X or 2Cr. Exposure in one stock < .2 times of the account size or <20L.
● For stocks with notional exposure 5-7L, 3 lots can be traded. For stocks with notional
exposure 8L or above, only 2 lots should be traded.
● Ex 1 - Asian Paint on recent result day.
○ With CMP - 2560, we short straddle for 140 bucks on the result day.
○ Next day, AP goes 10% up, straddle trades at 250 bucks - A loss of 110 bucks.
○ No of lots - 2 as notional exposure in AP is 8L
○ Total loss on 2 lots ~ 220 bucks or 66k - Not even 1% of the overall account size!!
● Ex 2 - Yes Bank traded at 238 on 26th Apr 2019 before the big fall started
○ Sold a 16-20 delta (200/280) strangle for 10 bucks.
○ Yes bank opened 10% lower next day and closed 30% lower.
○ Assuming no adjustments, not exiting at open or during the day. The strangle was
trading at 40 bucks at day end - Loss of 30 points.
○ No of lots - 4 as notional exposure is 5.3 L.
○ Total loss on 4 lots would be 2.6 lacs. That’s 2.6% on a staggering 30% move
 Position Sizing - Contd..
● Ex 3 - Infy ahead of result. Traded at 832 on 15th Jul 2020
○ Sold a ~16-20 delta strangle (760/910) for 11.5 bucks.
○ Infy posted stellar results and it opened 10% up next day.
○ Assuming no adjustments and choosing the worst possible time to exit
when call makes a high of 56 points - net loss of 45 points.
○ No of lots - 2 as Infy notional value ~10l
○ Total loss on 2 lots would be 1.08L or 1.1%
● Even for underlyings that have 10-12L worth notional exposure, if you stick to
this rule and trade only 2 lots for a 1cr account, the loss on one underlying
won’t usually be more than 1% of the overall account size. With smaller
account size of say 20-30L, even if you do 1 lot, your loss could well be
anywhere between 2-5% of account size depending on the underlying.
● Black Swan - Just like the calculation for a 15L account, even on a large
account with such position sizing, losses would (should) be limited to 15-20%
of the account size in case of a black swan too.
 Position Sizing - Equity
● For traders with capital 1-2L - Don’t trade F&O trade only cash stocks
● Divide capital in 20 stocks with 5% allocation to each stock
● Fix stop loss at 10% price drop in each stock
● If stop loss hits in a stock, the loss would be 0.5% of the account size
● If stop loss hits in all 20 stocks, the loss would be 10% of the account
size
● Keep riding the winners with some trail mechanism
Trading for a living - Full Time/Part Time

● Have a rule based system (Discretionary trading also has rules)

● Develop conviction on the system - Psychology based beliefs
● Set right expectations!!
● Trading is a marathon journey not a sprint
● Treat trading as a business - Set right expectations
● Right capital amount and dependence on trading Income
● Markets keep evolving - Adapt or die!

Why should you not become a full time trader!! | by Ashish gupta | Medium
 Trading for a living - Should you attend
‘trainings’?
● Most “traders” are trainers already
● Don’t get mesmerized by MTM screenshots
● Don’t get fooled by randomness of charts - they are nothing but probabilities
● Do a deep research on the trainer
● Ask for backtest reports upfront if it’s the system they are selling to you
● Ask questions on the systems/course - Is it really something that might suit
your trading style?
● Ask for proof on whether trainers are good traders themselves? A min of 50L
capital traded for a period of 3 years with a CAGR of 25%+ is a good indicator.
I bet 90% will fail here!
The Big Con: India’s burgeoning stock market ‘training’ scene | by Ashish gupta | Medium

Anatomy of a Con: How twitter trainers are duping retail (Part 1) | by Ashish gupta | Medium
Thank You
Have questions?

Reach out to me on Twitter -

@ashishgupta325